Graft Scandal at Malaysia Palm Oil Giant Brings Risks for Najib

Prime Minister Najib Razak wrote a message on his website this month to the more than 100,000 ethnic Malay families working on government-sponsored farms: "As long as I am prime minister, your welfare is guaranteed."

Just days later, angry chatter spread across a closed Facebook group with 50,000 members for families -- known as settlers -- given land decades ago during Malaysia’s independence. Many were concerned by a graft probe at one of the world’s largest palm oil producers, Felda Global Ventures Holdings Bhd, because the bulk of settlers hold shares in the listed unit of a government agency.

One of them was Zulkefli Nordin, 57, a retired civil servant from Selangor state in eastern Malaysia whose parents are settlers. "Already, there are rumors circulating about why this happened, and I’m afraid it is the Barisan Nasional government that would feel pain from this" scandal, he said.

Farmers are already upset by a long decline in Felda shares and late assistance payments from the state-backed company, which traces its roots to a 1956 grant from the World Bank and is virtually synonymous with government aid to rural Malaysia. That’s bad news for Najib, whose coalition needs farming votes to extend its 60 year grip on power in an election that may come within months.

Felda settlers make up the majority of voters in 54 out of 222 federal seats, and Najib’s Barisan Nasional coalition won all but six of those seats in the 2013 election, according to Shahaniza Shamsuddin, a lawmaker with Najib’s United Malays National Organisation.

Together with districts in the east dominated by ethnic Malays, Felda settlers will determine the outcome of the election, said Oh Ei Sun, principal adviser to the Pacific Research Centre in Malaysia. Agriculture was 8.9 percent of Malaysia’s gross domestic product in 2015, with palm oil making up 47 percent of that.

While the vote is not due until mid-2018, politicians and analysts have indicated it could come by the end of this year as Najib seeks to capitalize on an opposition in disarray and expectations economic growth may slow next year.

The Malaysian Anti-Corruption Commission is investigating several cases involving FGV, whose parent agency, the Federal Land Development Authority, was formed to help steer the rural poor out of poverty. The company’s board ordered president and chief executive officer Zakaria Arshad on leave pending an internal probe into transactions by unit Delima Oil Products Sdn.

Zakaria has denied any wrongdoing. Najib, who is not involved in the probe, said on Saturday he wanted FGV’s problems to be resolved during the Muslim fasting month of Ramadan which ends on June 24, the New Straits Times reported.

‘Three Principles’

"The three principles in resolving the FGV tussle are to abide by the company’s laws, to be in line with good governance principles and to ensure the outcome must have undergone a fair process," Najib said in a fasting month address. His office declined to comment further to Bloomberg.

Najib’s government has showered settlers with gifts such as affordable homes and funds for education. On Saturday, he announced a 500 ringgit ($117) payment to Felda families to help them celebrate the festival for the end of Ramadan, according to the official Bernama news agency. FGV will also pay a 280 ringgit dividend to the nearly 95,000 settlers who hold shares.

In May, Najib said the government would allocate 510 million ringgit to smallholders for replanting or new planting.

Still, some farmers have complained of late assistance payments from Felda and about FGV’s declining value, with the stock 62 percent below its listing price in 2012. Felda often issues loans as a monthly allowance until land bears fruit, which could take years, raising the risk settlers fall into debts they can’t manage.

Unhappy, Distrustful

Eighty percent of voters in Shahaniza’s assembly seat in Pahang state in central Malaysia are Felda settlers. They were already "unhappy and distrustful of the government" because Felda was as much as a month late in paying them for their produce, she said. "So that matter hasn’t fully died down yet, and this investigation happens. It isn’t good."

Najib told a gathering of settlers last September he had heard complaints about late payments and the government was working on ways to improve the system, The Star reported at the time. FGV chairman Isa Samad was not immediately available to comment on the payments issue when contacted by Bloomberg.

Zakaria urged the anti-graft agency to probe alleged improprieties at FGV, he told The Star last week. The plantation settler’s son said he often disagreed with Isa on how the company was managed and was overruled by the board at least twice related to investments.

Isa told reporters last week that Zakaria’s enforced leave was normal procedure and only getting attention for political reasons. "There’s a lot of voters in Felda." He declined to comment further on that matter when contacted by Bloomberg.

Opposition Efforts

Zainuddin Mat Naan, 59, an UMNO member and Felda settler from Selangor, said he was finding it difficult to defend the government to his community. "My neighbors often ask me, how can we depend on the government when the government can’t even help us Felda settlers? And now this happens," he said.

Some children of settlers said they might urge their parents to vote against Barisan Nasional. “We can influence how our parents vote,” said Zainuddin Zainal, 51, from Selangor. “We are educated professionals, we know what’s happening.”

Still, while the opposition has increased visits to settler communities, the chances of winning them over are limited, said Ibrahim Suffian, executive director at the Merdeka Center for Opinion Research. "The opposition currently lacks convincing leadership or clarity of message, thus giving BN a clear advantage."

Lawmaker Shahaniza said her constituents still believed Barisan Nasional could help address Felda’s issues. "We’re hoping a solution is in sight for FGV’s problems” with the anti-corruption commission coming in, she said.